Buying another house, how is it usually done when you already own one?

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Forums › Finance and wealth management › Buying another house, how is it usually done when you already own one?

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#3118712 21-Aug-2023 17:22

cddt:

Handle9:

As a vendor if the buyer can’t pay a reasonable deposit (circa 10%) it’s a hard no from me. The risks are too high and it makes them a settlement risk. I’m liable for a ton of costs at the point it goes unconditional and they need to be incentivised to settle. The vendor can sue to chase additional costs but a reasonable deposit gives a lot more certainty.

I’d be even more wary in the case of back to back contracts.

I accepted a 5% deposit last year, and when it came time to settle I could tell the buyer was regretting his purchase. It was extremely stressful as it sounded like he was trying to find an excuse to walk away from the purchase, forefeiting his deposit, but leaving us in the lurch having purchased another house.

I would never accept less than 10% in future.

I do wonder how common that is that people would pull out, losing their deposit and potentially being liable for a lot of other costs. But possibly it is more common now with the rising interest rates, and people not being able to service the same sized mortgage they once thought they could service. IMO agents possibly shouldn't be paid until the actually settlement occurs, rather then it just going unconditional. That would give them an incentive to help the their client if there are issues. Until settlement occurs, the transaction hasn't been completed.

Handle9

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#3118718 21-Aug-2023 17:30

cddt:

Handle9:

As a vendor if the buyer can’t pay a reasonable deposit (circa 10%) it’s a hard no from me. The risks are too high and it makes them a settlement risk. I’m liable for a ton of costs at the point it goes unconditional and they need to be incentivised to settle. The vendor can sue to chase additional costs but a reasonable deposit gives a lot more certainty.

I’d be even more wary in the case of back to back contracts.

I accepted a 5% deposit last year, and when it came time to settle I could tell the buyer was regretting his purchase. It was extremely stressful as it sounded like he was trying to find an excuse to walk away from the purchase, forefeiting his deposit, but leaving us in the lurch having purchased another house.

I would never accept less than 10% in future.

You can't just walk away and forfeit the deposit. It's an unconditional contract and as the purchaser they are liable for any costs to the vendor by not settling.

As the vendor the deposit gives you some breathing space to fund your expenses and potential legal costs to sue the purchaser. You can't spend cash you don't have and a decent deposit gives you some flexibility.

Handle9

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#3118719 21-Aug-2023 17:32

mattwnz:

cddt:

I accepted a 5% deposit last year, and when it came time to settle I could tell the buyer was regretting his purchase. It was extremely stressful as it sounded like he was trying to find an excuse to walk away from the purchase, forefeiting his deposit, but leaving us in the lurch having purchased another house.

I would never accept less than 10% in future.

I do wonder how common that is that people would pull out, losing their deposit and potentially being liable for a lot of other costs. But possibly it is more common now with the rising interest rates, and people not being able to service the same sized mortgage they once thought they could service. IMO agents possibly shouldn't be paid until the actually settlement occurs, rather then it just going unconditional. That would give them an incentive to help the their client if there are issues. Until settlement occurs, the transaction hasn't been completed.

They don't just forfeit the deposit. They are then on the hook for any difference in the subsequent sale price and any other costs the vendor has.

The REA has done their job getting an unconditional deal. They have no right to scrutinise the purchasers affairs. Providing they do their job with a reasonable duty of care they have done their part and should be paid as per the contract.

mattwnz

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#3118729 21-Aug-2023 17:54

Handle9:

They don't just forfeit the deposit. They are then on the hook for any difference in the subsequent sale price and any other costs the vendor has.

The REA has done their job getting an unconditional deal. They have no right to scrutinise the purchasers affairs. Providing they do their job with a reasonable duty of care they have done their part and should be paid as per the contract.

Yes, that is why I said they could be liable to other costs too. But the seller could also end up selling for more to another party as well. But the seller would then have to involve a lawyer to take action against the person that pulled out. But normally if people will pull out, it will be before it goes unconditional, so they don't then lose their deposit and I have had to do this once after due diligence.
Yes under the usual contracts between vendor and agent, that is all an agent is required to do under a normal contract, but that doesn't mean it couldn't be more fair to sellers. Not sure if something like that could be written into the contract, where the agent doesn't get paid until settlement is completed. Some agents do already scrutinise a buyers ability to buy it I have found, especially when selling high value properties. I am sure some will do some basic googling into interested parties. They don't want to waste their time on people who are just being nosey or just want to look at a house but have no ability to buy it

Wheelbarrow01

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#3118852 21-Aug-2023 23:21

As others have said, we found getting approval for open bridging finance impossible earlier in the year. And that was with only $80k owing on our current property and an above average no kids double income (and me with a credit score of 1104 out of 1000 according to ClearScore - who knew that was possible???)

The problem was/is the falling market - the bank's over-arching concern is how much the market value of our existing house might drop before a sale can be made, and how long it might take for that sale to occur. So they work their numbers on an absolute fire sale price. Our bank manager said they had not approved any open bridging applications for a very long time and this was likely to continue for the foreseeable future.

Apparently closed bridging (where we already have an unconditional offer on our existing home) would have been no problem. This scenario provides price and time certainty to the bank which significantly removes risk for them and their customer.

mattwnz

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#3118855 22-Aug-2023 00:02

Wheelbarrow01:

The problem was/is the falling market - the bank's over-arching concern is how much the market value of our existing house might drop before a sale can be made, and how long it might take for that sale to occur. So they work their numbers on an absolute fire sale price. Our bank manager said they had not approved any open bridging applications for a very long time and this was likely to continue for the foreseeable future.

Although according to numerous articles in the media , the house price falls have stopped. It is interesting how banks lending practices have changed.

cddt

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#3118873 22-Aug-2023 04:41

Handle9:

You can't just walk away and forfeit the deposit. It's an unconditional contract and as the purchaser they are liable for any costs to the vendor by not settling.

While you are technically correct, there are scenarios in which the purchaser is unwilling or unable to settle and you may not have much recourse. For example, if a company is the purchaser on the S&P, the management may decide to wind it up rather than complete an unprofitable transaction, or you may sue the company to find it has no assets, or the assets cannot be identified. Another scenario is that the purchaser is unable to settle because they do not have the means to do so, and therefore suing for costs and losses could be fruitless. In the meantime you are also on the hook because you have likely entered an unconditional contract to purchase another property.

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Handle9

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#3118874 22-Aug-2023 05:20

Which loops back to the need for a reasonably large deposit

alasta

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#3118904 22-Aug-2023 08:48

Wheelbarrow01:

Apparently closed bridging (where we already have an unconditional offer on our existing home) would have been no problem. This scenario provides price and time certainty to the bank which significantly removes risk for them and their customer.

I'm struggling to understand how you would actually use this in practice? Presumably you get an unconditional offer on your existing home, then get the bridging finance approved, then make an offer on your next home? But this process must be so condensed timewise that you would have insufficient time to find a new home that is suitable?

trig42

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#3118910 22-Aug-2023 09:05

Yep, I think the only time where you might used closed bridging finance is if there is a long settlement on the house you are selling, and a short one on the one you are buying, so you want to move out of your current house before it settles.

We just aligned our settlement dates when we sold/bought earlier this year - the purchaser of our home gave us the settlement date (which was about 6 weeks from memory) and when we purchased the new house, we used the same settlement date. Money all went through no issue, we had the keys to the new house at about 1pm. I was a bit nervous something would go wrong and we'd be stuck outside the new house with a truck full of furniture, but the solicitors assured us they do this all the time, and if the vendor mucked around, they'd be the ones liable for putting us up until the money went through.

alasta

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#3118952 22-Aug-2023 10:45

trig42:

We just aligned our settlement dates when we sold/bought earlier this year - the purchaser of our home gave us the settlement date (which was about 6 weeks from memory) and when we purchased the new house, we used the same settlement date.

It sounds like you must have struck it really lucky to have had your offer accepted on the new house shortly after you accepted an offer on your old house? When you put your old house on the market, did you contemplate the likelihood that you might end up having to rent for a while?

trig42

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#3118955 22-Aug-2023 11:00

alasta:

trig42:

We just aligned our settlement dates when we sold/bought earlier this year - the purchaser of our home gave us the settlement date (which was about 6 weeks from memory) and when we purchased the new house, we used the same settlement date.

It sounds like you must have struck it really lucky to have had your offer accepted on the new house shortly after you accepted an offer on your old house? When you put your old house on the market, did you contemplate the likelihood that you might end up having to rent for a while?

No, not really.

We had an idea where we wanted to be and had been looking for a while. We were lucky in that the house we purchased was empty (the owner having moved into care), so they were happy to accommodate our settlement date request.

If it hadn't worked, and the vendor wanted a later settlement date, we would have reduced our offer accordingly and found accommodation. If they wanted to settle earlier, we would have just said no - finance not available earlier (it's a buyers market at the moment).

MadEngineer

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#3118957 22-Aug-2023 11:05

We’ve recently done this

Renting out the existing home made everything so much easier as we’re not relying selling first and in turn relying on the chain of sales of anyone else.

We simply got our home valued and appraised for rental and added that as an income on our loan application.

Boom, done.

It became apparent that anyone could go down this route to get themselves into their next home but instead pull out of renting before it’s advertised and put it up for sale.

You're not on Atlantis anymore, Duncan Idaho.

David321

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Ultimate Geek

#3118990 22-Aug-2023 13:26

I have certainly learnt a lot here since posting this so thanks for that everyone, one thing I am now curious about is the following possibility and if there is any safe guards in place for it should it occur.

We find a house we want to buy and make an offer subject to the sale with our house within 3 months (or a mutually agreed timeframe), the seller includes the (apparently common) cash out clause, meaning they can terminate the deal should they receive a cash offer better than ours.

Meanwhile we are trying to sell our house so we can go ahead with the purchase of the one we have an agreement to buy, and we find a buyer who makes an offer subject to a few things like securing finance and maybe a building inspection etc, we agree on a deal meaning if they get everything done the house is theirs once they have got their finance etc and the settlement date arrives. BUT after we make an agreement with people who want to buy our house the sellers of the new house we want to buy receive a cash offer better than ours and opt to sell to them instead using their cash out clause. As far as I am aware we would be legally committed to selling to our buyer should they secure their finance etc but would not have a house to move in to as the one we wanted was sold to someone else after the owners used their cash out clause?

I understand this would probably be unlikely, but as I see it as a possibility with some pretty big implications/consequences id like to know more about options in regards to this.

_David_

cddt

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#3118998 22-Aug-2023 13:49

David321:

We find a house we want to buy and make an offer subject to the sale with our house within 3 months (or a mutually agreed timeframe), the seller includes the (apparently common) cash out clause, meaning they can terminate the deal should they receive a cash offer better than ours.

Meanwhile we are trying to sell our house so we can go ahead with the purchase of the one we have an agreement to buy, and we find a buyer who makes an offer subject to a few things like securing finance and maybe a building inspection etc, we agree on a deal meaning if they get everything done the house is theirs once they have got their finance etc and the settlement date arrives. BUT after we make an agreement with people who want to buy our house the sellers of the new house we want to buy receive a cash offer better than ours and opt to sell to them instead using their cash out clause. As far as I am aware we would be legally committed to selling to our buyer should they secure their finance etc but would not have a house to move in to as the one we wanted was sold to someone else after the owners used their cash out clause?

I understand this would probably be unlikely, but as I see it as a possibility with some pretty big implications/consequences id like to know more about options in regards to this.

The scenario you describe has two contracts - you are buying one house and you are selling one house. In both cases you are describing conditional offers. Your offer is conditional on you accepting an unconditional offer on your house. The offer your buyer makes you is conditional on due diligence, building report, finance, colour of the flowers, whatever. When your buyer satisfies their conditions, they pay the deposit and the contract to sell your house becomes unconditional (i.e. legally binding). At that point you let the selling agent of the house you want to buy know you have secured an unconditional offer on your house and you pay your deposit and the contract to purchase the new house becomes unconditional.

So essentially the two contracts become unconditional contemporaneously.

You should engage a good property lawyer - they can explain this to you at each step and ensure the conditions written in the respective S&Ps mean what you think they mean.

In my opinion you should be both listing your house for sale at the same time as you are looking for another house. Don't wait until you've found a house you want to buy before listing your house.

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